How to avoid the destruction wreaked by a visit from one of the Four Horsemen of the Financial Apocalypse

In the first in a series of articles, we look at the financial impact of the four events most likely to cause massive upheaval in peoples' lives - death, divorce, moving home and losing a job. By Brian Tora

In more than three decades of advising people on financial affairs, it is the same problems that crop up again and again. Markets fluctuate; tax rates rise and fall. The detail of advice may change, but the problems remain the same.

There are four particular events that bring an immediate need for financial reappraisal. Unfortunately they also involve considerable emotional turmoil.

The four horsemen of the financial apocalypse are death, divorce, losing your job and moving house. All have financial consequences that can be of great significance and all introduce additional stress into our daily lives. Indeed, so commonplace are they that those who can avoid a visit from any of them is lucky indeed. This week we start with the grim reaper: death.

Nothing is certain except death and taxes, which makes this particular horseman the obvious one to plan for. Death brings with it tax implications and other concerns that need to be thought through in advance. This spares family from having to sort out the mess.

Let us take the case of two widows who I advised some years ago. On the face of it there were many similarities. Both had successful husbands who had taken charge of the family's financial affairs in the past, so they were unused to looking after money. Their homes were in similarly smart London suburbs.

One widow was young with children at fee-paying schools, her late husband a director of a subsidiary of a major multinational firm. Widow number two was in her 60s, her late husband an entrepreneur. She had a holiday home in Spain, a flamboyant lifestyle and grown-up children. You would think she had less to worry about. But this was not the case.

Widow two's husband died after a short illness. Although in his late 60s, he had not planned for it. Nearly all the family assets were in his name, including the house in Spain, which is where the first complication came in. Probate had to be lodged with the Spanish authorities, which delayed the distribution of his estate for some years. His widow found she had insufficient income on which to live. Neither had he made much in the way of pension arrangements, believing he could sell his businesses to provide a retirement fund. Sadly, his death coincided with the deepest point of the recession so these assets fetched far less than they might have.The subsequent change to her lifestyle came as a huge shock.

On the other hand, widow number one, whose husband died in a road accident, was concerned that her children would have to leave their school and move to a smaller, cheaper house. But her husband, although far less wealthy on paper, had recognised his family obligations. The mortgage on the home was covered by life assurance, as were the school fees, so the family's outgoings were reduced considerably. The loss of her husband's income was a major blow, but the effect was mitigated by a death in service benefit put in place by the employer. Half of the not-inconsiderable sum was placed in trust for the children, but as the money came from his employers, it did not attract inheritance tax.

What is more, all this cash was available immediately to provide an income with no delays through the granting of probate - and with tax advantages, too.

The relative ease with which her financial affairs sorted themselves out was little compensation for the loss of her husband. But at least she did not have to face the consequences of poor financial planning. She did move house, but only to make a fresh start and to add to a pile of savings that started to accumulate as her husband's life assurance policies came due.

I know of a man whose wife died leaving him to bring up the three children alone. The additional cost of a home help was such that, when he remarried, he insured his new wife to prevent a repeat of the experience.

Although employee benefits can be useful in plugging the hole from a loss of earnings, it is worth checking in advance what you will receive. Some occupational pension schemes reduce considerably the benefits to widows if the employee leaves to join another organisation. Do not assume that a past pension will be sufficient.

If you own property abroad remember that local authorities may have to be notified of a death, which can create complications. It is always worth seeking professional advice on how best to own overseas assets - but before you purchase.

If you have an investment portfolio, it may be worthwhile having them held jointly, perhaps through a nominee company. In certain circumstances this can allow swifter access to these assets, but again, take careful advice first.

The author is chairman of the Investment Strategy Committee of stockbrokers Greig Middleton.

Inheritance Tax:

what you can do

Most lifetime gifts are now free from inheritance tax provided you survive for seven years. Timing is everything. Remember a future government may tighten the regime.

You should aim to spread assets among your family to reduce inheritance tax, taking advantage of exempt transfers.

These include transfers of assets between husband and wife which, if you are domiciled in the UK, are exempt from inheritance and capital transfer tax during life and from inheritance tax on death.

You can make a range of lifetime gifts, including pounds 3,000 a year for both husband and wife, and small gifts of pounds 250 to an unlimited number of individuals. Transfers to charities and political parties also count.

DOS AND DON'TS

do

Make a will. Dying intestate can prolong considerably the length of time it takes to settle an Estate.

Ensure known liabilities are adequately covered. Endowment policies may no longer be popular for covering mortgage debts but some form of insurance is advisable if a surviving partner is not to be left stranded.

don't

Hide the will where no-one can find it. You might as well not have bothered.

Procrastinate over intended plans. You would be surprised how many people cannot get life assurance because they left it too late.